S.F. Construction Slows To a Crawl
Monday, March 9, 2009
(03-08) 19:51 PST -- Much can be learned about the San Francisco real estate market by taking a quick look at 10th and Market streets.
A high-rise condominium tower was supposed to be built on the excavated lot on the southwest corner. Across the street, a new - and still empty - 20-story condominium tower was unsuccessfully put up for sale during the second half of 2008. The condos are now being marketed as rental apartments.
During the past few years, the city experienced a major building boom. But now it is like most places in the nation, where banks are reluctant to approve construction loans and the demand for expensive homes and office space has evaporated.
The dearth of development activity and the perception that a recovery is not imminent has meant stalled growth in neighborhoods that were expected to blossom, scores of layoffs in city departments that rely on permit applications, and a precipitous decline in construction jobs.
"There's so much uncertainty that you don't know what fence you're hitting toward," said Tim Tosta, the lawyer representing developers for the Crescent Heights housing project proposed for that empty lot at 10th and Market.
The Crescent Heights developers are pushing forward, trying to find the money necessary to build. Other city developers, from downtown to the Mission District, either can't afford their construction loans or want to wait until they think the market has hit bottom.
Yet not all is doom and gloom. Some developers are applying for building permits and others continue to hire architects, engineers and lawyers. Several large public-private projects, such as the redevelopment of the Hunters Point Shipyard, and small housing developments are still in the works.
Meanwhile, as part of Mayor Gavin Newsom's evolving stimulus plans, the city is trying to devise incentives for developers who want to break ground.
"The number of projects asking for approvals has slowed, but it hasn't dropped off a cliff," said Michael Cohen, head of the city's Office of Workforce and Economic Development. "People are spending money on the planning process with the assumption that once they get through that, things will be in a better place" financially.
For the time being, however, construction in San Francisco is only creeping along.
25% Without Jobs
About 25 percent of the San Francisco region's approximately 16,000 building trades workers are out of work, compared with nearly full employment last year, said Michael Theriault, secretary and treasurer of the San Francisco Building and Construction Trades Council.
"I've received calls from people in other parts of the country about work here, and I tell them not to come," Theriault said.
The city received 5,600 building permit applications in July. In January, it received just over 4,000. More important, the monetary value of the permits, which often indicates the size and complexity of projects, dropped from about $240 million in July to $78 million in January. As a result, the city's Building Inspection Department laid off 48 employees earlier this month.
The Planning Department also has seen a steep drop in applications for midsize and large projects. The department expects to be $4.1 million in the red at the end of the fiscal year and recently laid off eight employees.
Areas of the city where development was expected to heat up are ice cold.
For example, many projects have been waiting - some for several years - for the city's recent completion of a major rezoning of four neighborhoods on the east side. City officials expected that new construction would flood the area as soon as the planning was done.
So far, only a handful of approximately 70 projects filed with the city's Planning Department have moved forward.
The high-rise gap that has long existed between the Bay Bridge and the city's traditional downtown also was expected to start filling up with several new towers by now. But those skyscrapers appear to be stalled.
Mike Kriozere is the developer of the One Rincon project. It includes a 64-story condo tower finished last year. A second, 52-story building is now on hold.
"San Francisco typically has a better real estate market than maybe any other city in the country, but people aren't willing to pay enough for a premier building today," Kriozere said.
Downtown developments to the north also are dormant. Pile driving that had started on an office building at 535 Mission St. stopped a couple of months ago.
The city is trying to do its part by extending some permits that would otherwise soon expire. And city officials also are discussing deferring some development fees until construction starts.
Kelley Amdur, a city planner who oversees downtown projects, said it's a good sign that some developers continue to plan and apply for permits. Planning approvals typically expire in 18 months for office buildings and three years for residential.
"It could mean that developers will want to get moving in 18 months, but the question remains whether the lenders will be ready," Amdur said.